|Tuesday, 27 January 2004||
IN MAY of this year, the European Union (EU) will take in ten new members. Four of the biggest, Poland, Hungary, the Czech Republic and Slovakia, are all struggling with mounting budget deficits and contemplating awkward spending cuts. As such, they will fit right in among the union’s existing members. France, Germany, Italy and Portugal all have their own fiscal troubles. When it comes to fiscal imprudence, Europe, old and new, is in perfect harmony.
As members of the EU, the new entrants must strive towards membership of the single currency. Unlike Britain, they do not have a formal opt-out and most are eager to opt in as soon as possible. But to qualify for membership, the EU’s new countries must show that their economies have “converged” with those of the euro area. Convergence must be fiscal as well as monetary. Public debt must be kept under 60% of GDP and budget deficits held to 3% or less. Maastricht is moving east. Unfortunately, central Europe is not yet ready to meet its standards. Poland’s deficit was reckoned to be 4.2% of GDP in 2003. Slovakia’s was 5%. Hungary’s might be anything from 5.6% to 6%. And the Czech Republic, with a deficit of 7.6%, is displaying a positively bohemian attitude to fiscal responsibility.
Need they worry? After all, the founding members of the euro have themselves conspicuously failed to live by the single currency’s fiscal rules.